In a crescendo of violence in Iraq, a suicide bomber killed 40 army recruits in Mosul as Shia leaders reacted furiously to a US-Iraqi raid on a mosque which they claim killed 37 people. A further 21 bodies were found in and around Baghdad, some with nooses around their necks.

The suicide bomber blew himself up yesterday in a recruitment centre near a joint Iraqi-American military base, with the usual devastating results for the unemployed young men waiting for a job in the armed forces.

The killing of what the Americans say were 16 "insurgents", and what Shias claim were 37 unarmed worshippers in the Mustafa mosque, may turn out to be a turning point in the three-year-old Iraq crisis. Iraq’s Shias, 60 per cent of the population, have hitherto largely co-operated with American occupation while Sunni Arabs have resisted. But the Shias increasingly see the US as trying to deny them power despite the electoral success of its Alliance.

Shia leaders demanded yesterday that the US return overall control of security to the Iraqi government. Jawad al-Maliki, a senior spokesman and ally of Iraq’s Prime Minister, Ibrahim al-Jaafari, said: "The Alliance calls for a rapid restoration of (control of) security matters to the Iraqi government". Negotiations on forming a new government were cancelled by the Shias while President Jalal Talabani said the US had agreed "to form an Iraqi-American committee to investigate the attack".

Critics of the killings at the mosque included the most powerful members of the Iraqi government. "Entering the Mustafa Shia mosque and killing worshippers was unjustified and a horrible violation from my point of view", Bayan Jabr, the Interior Minister, told Al-Arabiya television. "Innocent people inside the mosque offering prayer at sunset were killed."

The US is now caught up in a growing confrontation with Iraq’s 15 million Shias. The governor of Baghdad, Hussein Tah-an, said the city’s provincial council had cut ties to the US military and diplomatic mission, "because of the cowardly attack on the al-Mustafa mosque".

A US spokesman denied that a mosque had been entered but reporters who visited the scene yesterday said the site of the killings was a Shia mosque complex. The local police said shots had been fired at a joint US-Iraqi patrol but not from the mosque. They confirmed the claim by Shia leaders that all the dead, whom they estimated to number 22, were in the complex for evening prayers and none were gunmen.

The US-Iraqi special forces were patrolling an area loyal to Muqtada al-Sadr, the nationalist cleric, who has a huge following. An Iraqi political scientist said: "The mosque incident was the Americans trying to de-claw Muqtada al-Sadr. The Americans want to show they are the most powerful force on the ground. But this will encourage Iraqis to support Sadr."

The US fought Mr Sadr’s militia twice in 2004 but the confrontations served only to add to his popularity.

The Shias were already suspicious of US efforts to force them to accept a national unity government whose composition goes against the election results. The US, UK and the Gulf Arab states want Iraq’s government to include Iyad Allawi in a powerful position although he only won 25 out of the 275 seats in parliament. The US now faces the prospect of hostility from the Shia, the community from which most of the Iraqi army and police are recruited.